India's market cap to GDP ratio at 0.62 times is 60% lower than Dec 2007 peak (1.5) and is marginally higher-than-March 2009 lows (0.55).
Valuations of MSCI India valuation are near the long term average in PE terms. Excluding the IT Services, Health care and Consumer Staples staple sector, median 12 month forward PE is a reasonable 12 times for MSCI India companies.
Mid - cap valuations are inexpensive compared to historical trading range.
A sustainable re-rating in valuations needs fundamental improvement, but low valuations do become a support in an increased risk-appetite environment.
India has been a preferred market for FIIs over the last three years. India weight in the EPFR universe is at a historic high. Any reversal in this preference would require a relative deterioration in India’s macro outlook. Recent developments in other key EMs have been supportive of India’s relative preference. Also, local political developments have been supportive.
